Urban Ontario hard hit by soaring hydro rates

Increasing urban-to-rural hydro subsidies in Ontario would cause more pain to customers already experiencing some of the fastest rate increases in North America.

Hydro customers in Toronto have been hit with the fastest rate increases in North America over the last year. Between May 2015 and 2016, the average residential hydro customer in Toronto faced a rate increase of 19.2% – more than ten times the 1.88% rate of inflation for other goods in Ontario.

That gut kick would be made all the worse if proposals to increase urban-to-rural subsidies are adopted. One recent media report suggested Ontario should require urban customers to pay even more in order to subsidize rural hydro bills (Toronto Hydro is the largest urban utility). According to the report, if all non-rural customers in Ontario paid an additional $1.56 per month, it would “equalize” rates paid by Hydro One’s rural and urban customers. [1]

If that cost was included in our analysis, it would bring the year-over-year increase in rates for Toronto Hydro customers to more than 20%, or nearly eleven times the rate of inflation.

Toronto Hydro’s residential customers have fared particularly poorly when compared with electricity customers in the United States. The average electricity rate for households over the first six months of 2015 and 2016 in the United States fell by 0.77%. In contrast, electricity rates in nearby New York fell by more than 8% over the same period.

The most recent rate hike is part of a much longer trend. A previous study by the Consumer Policy Institute showed that, over the last decade, Toronto Hydro customers experienced the fastest increase in electricity rates of any jurisdiction in North America – outpacing the increases faced by the province’s rural customers. Other urban utilities, such as Hydro Ottawa, experienced similar rate increases over the last decade, the study found.

Ontario already has a program that charges urban customers more in order to lower bills for rural customers. The program, known as Rural or Remote Electricity Protection (RRRP), provides a credit worth $31.50 to rural customers. The cost of the program for the average household in Ontario is around $1 per month.

The Ontario Energy Board (OEB), the provincial energy regulator, also recently introduced the Ontario Electricity Support Program Charge (OESP), which offers financial support to low-income households to pay their monthly hydro bill. The cost of the OESP to the average household is just under $1 per month.

METHODOLOGY

Toronto Hydro rates were calculated for both May 2015 and May 2016, based on rate order sheets issued by the OEB for the utility and the province-wide generation rates, which are set in May and November of each year. The 2015 rates include the Ontario Clean Energy Benefit (OCEB) and the Debt Retirement Charge (DRC). The bills were calculated using the average residential customer consuming 750 kwh per month.

U.S. rates are calculated using data from the U.S. Energy Information Agency (EIA) database. The agency calculates the average retail price of electricity each month for every state. The figure includes all fees, levies and taxes. We used an average price for January to June of 2015 and 2016.

1. Hydro One has three residential classes: urban, medium density and rural. It is phasing out the “seasonal” rate class that it previously employed.

Brady Yauch is the executive director and economist at the Consumer Policy Institute, a division of Energy Probe Research Foundation.